As an income-driven investor who is highly attracted to a number of higher-yielding names, I've decided to shift my focus to the timber REIT sector, and highlight a number of reasons behind my decision to remain long on shares of Plum Creek Timber (NYSE:PCL).
With its operations based in Seattle, Washington, Plum Creek Timber, Inc. is a publicly owned real estate investment trust (REIT) that owns and manages timberlands in the United States. Its primary products include lumber, plywood, medium density fiberboard and related by-products, such as wood chips, and a number of its ancillary operations also focus on mineral extraction and the production, communication and transportation of natural gas.
Recent Performance And Trend Behavior
On Friday, shares of PCL, which currently possess a market cap of $7.21 billion, a forward P/E ratio of 24.92, and a dividend yield of 4.33% ($1.76), settled at a price of $40.69/share.
Based on their closing price of $40.69/share, shares of PCL are trading 2.53% below their 20-day simple moving average, 3.72% below their 50-day simple moving average, and 8.45% below their 200-day simple moving average. It should be noted that these numbers indicate a short-term and mid-to-long term downtrend for the stock, which generally translates into a selling mode for most near-term traders and many long-term investors. That being said, I actually think the recent sell-off creates a slight a buying opportunity and for those of you who may in the market for a timber-based REIT that offers a 4%+ yield, this may very well be a solid pick to add to your portfolio especially before the company announces its upcoming quarterly results on April 28th.
A Look Ahead To Plum Creek's Upcoming Earnings
When it comes to the company's upcoming earnings, there are a number of things potential investors should consider. For example, analysts are currently calling for PCL to earn $0.16/share in terms of FFO (which is $0.15/share lower than the company had reported during Q4 2013 and $0.19/share lower than the company had reported during Q1 2013). In order to meet and/or exceed its quarterly FFO estimates, I'd like to see an increase in the company's EBITDA (within the range of 2.5% on the low side and 5% or more on the high side), a fair increase in operating income (+1.5% on the low side and +3.3% or more on the high side), and lastly an increase in the company's overall operating profit as contributed by each of its four segments (in this particular breakdown I'm looking for an average +2% increase on the low side across all four segments and an average +3.75% or more on the high side across all four segments). If the above mentioned criteria is met and or exceeded, there's a very good chance that current FFO estimates could come in-line or may even be surpassed.
Plum Creek's Recent Dividend Behavior Could Be Enhanced If Earnings Growth Strengthens Over The Next 6-12 Months
Since February 15, 2012, the company has increased its quarterly distribution once over the past 24 months (including the company's most recent increase that was announced on May 15, 2013) which translates into an average annual dividend growth rate over that particular period of approximately 4.76%. From an income perspective, the company's forward yield of 4.33% ($1.76) coupled with its 24-month dividend behavior certainly make this particular stock a very viable income option for long-term investors in search of a higher-yielding timber play.
If the company's FFO can demonstrate a steady uptrend over the next 6-12 months, there's a fairly reasonable chance the company's quarterly dividend could see an increase of at least $0.02/share within that timeframe.
For those of you who may be considering a position in Plum Creek Timber, I strongly recommend keeping a close eye on the company's recent trend performance, its ability to continue to maintain its dividend, and its ability to continue to enhance shareholder value over the next 12-24 months, as each of these factors could play a role in the company's long-term growth.
Disclosure: I am long PCL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.